It does sound like it's one of the lines to the steering box. Not too expensive a fix. It might be the steering box itself though, which is more like a $450 item (rebuilt) with another couple hundred in labor.
Cohline/OEM Power Steering Hose; High Pressure Hose from Pump to Steering Box 1 per car. $71.20
Cohline Power Steering Hose; Low Pressure Return Hose; 12mm ID; Bulk
Please verify hose diameter prior to ordering. Sold by the meter. $13.15
I'm kinda with jdc1244, in that it looks as though you really need to have an honest assessment of the car by a trusted guy in 126s. It would be worth a couple of hundred to have a THOROUGH checkup, with the idea that a list of items could be set up, in a 1-2-3 priority order, with approximate prices, perhaps even split out as to parts/labor. Then you could make a better judgement about how much you'll need to get the car to be "whole" enough to at least be a daily driver, if that's what you want. If you can DIY for some of the items on the list, great-- save some money and really get to know this car while you're doing it. If, on the other hand, the list is too long, or the total price is too high, than I would agree that perhaps this was a lesson in 126s, as jdc1244 said. There are some really fine 126s out there, with far less mileage, in (apparently) better shape, for between $3000 and $6000. If your list looks like the car still needs $2500 or more to get into shape, then you'll be into it for $5000 or so (depending on what's been done thus far). You can see that you'll be playing a losing proposition if the list goes very far beyond the $2500.
As many have said here, get the most well-maintained example you can, even if it's $2000 or $3000 more. Complete service records and receipts (going back at least 10 years) are worth at least $500, maybe even $1000. "The most expensive Mercedes is a cheap one," or something like that. You may be on the short end of this one, and depending on how the analysis/inspection comes out, it might be worth considering it as a parts car for your next one (or to part out).